International consultancies warn Indonesia of financial contagion

The Jakarta Post-- Amid the recent financial turmoil in Turkey and other emerging economies, Indonesia's biggest fund managers carry a warning: Watch out for domino effects.

Though predicting increases in Indonesian equities this year as elections boosted spending, UK-based Schroders and Canada-based Manulife Asset Management warned that the recent sell-off among portfolio investors in Argentina and Turkey might also hurt Indonesia, as they were all seen in the same asset class of emerging economies among investors.

The local units of the financial services giants are the two biggest fund managers here, with managed assets worth 90 trillion rupiah (US$7.4 billion) combined.

"Would there be any spillover into other emerging markets? Yes, there would. What happens in Turkey may lead to spillovers in South Africa, Indonesia, India — almost all emerging economies will feel the impact," Michael T. Tjoajadi, the chief executive officer of Schroder Investment Management Indonesia, said on Wednesday.

In response to recent capital outflows and a weakening currency, Turkey's central bank held an emergency late-night meeting on Tuesday that concluded with drastic interest rate hikes, with its one-week repo rate raised to 10 percent from 4.5 percent.

Recently, global fund managers also dumped their assets placed in Argentina, after seeing the country grapple with alarming levels of inflation and currency depreciation, both of which had already hit double digits, raising the specter of a potential default in South America's third-largest economy.

"In Argentina, people don't think the problem is over. There may be some surprises, with further spillovers [to Indonesia] still expected," said Tjoajadi, who leads the biggest fund management firm in Indonesia that oversees US$4.1 billion worth of assets.

The Jakarta Composite Index (JCI) declined the most in five months on Monday before rebounding 1.7 percent to close at 4,417.35 on Wednesday, on the back of improving global sentiment.